Plant location and layout

Team members

PLANT LOCATION AND LAYOUT


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Table of Contents

INTRODUCTION ................................................................. 3

NEED FOR SELECTING A SUITABLE LOCATION ................................................................................... 3

I. In Case of Location Choice for the First Time or New Organisations ............................................................... 4

1. Identification of region: ........................................................................................................................ 4

2. Choice of a site within a region: ............................................................................................................. 4

3. Dimensional analysis: ........................................................................................................................... 4

III. In Case of Global Location ...................................................................................................................... 6

VIRTUAL PROXIMITY ............................................................................................................................ 6

VIRTUAL FACTORY ................................................................................................................................ 6

REASONS FOR A GLOBAL/FOREIGN LOCATION .................................................................................... 7

A. Tangible Reasons .................................................................................................................................... 7

Reaching the customer: ................................................................................................................................ 7

B. Intangible Reasons .................................................................................................................................. 8

FACTORS FOR GOOD LAYOUT .............................................................................................................. 9

(i)Material Factors ....................................................................................................................................... 9

(ii)Men Factor .......................................................................................................................................... 10

(iii)Machinery Factor ................................................................................................................................. 10

(iv)Movement Factor ................................................................................................................................. 10

(v)Waiting Factors ..................................................................................................................................... 10

(vi)Service Factors ..................................................................................................................................... 10

(viii)Change Factor .................................................................................................................................... 10

Types of Plant Layout ................................................................................................................................ 11

1. Product or Line Layout: .......................................................................................................................... 11

Advantages offered by Product Layout: .......................................................................................................... 11

Limitations of Product Layout: .................................................................................................................... 12


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2. Process or Functional Layout: ......................................................... 12

Advantages of Process Layout: ........................................................... 12

Limitations of Process Layout: ..................................................................................................................... 12

3. Fixed Position Layout: ............................................................................................................................ 13

Advantages Offered by Fixed Position Layout: ................................................................................................ 13

(v) It offers greater flexibility and allows change in product design, product mix and production volume. .............. 13

Limitations of Fixed Position Layout: ............................................................................................................ 13

4. Combination Type of Layout: .................................................................................................................. 13


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Introduction Plant location or the facilities location problem

is an important strategic level decision-making for an organization. One of the key

features of a conversion process (manufacturing system) is the efficiency with which the

products (services) are transferred to the customers .This fact will include the

determination of where to place the plant or facility.

The selection of location is a key-decision as large investment is made in building plant

and machinery. It is not advisable or not possible to change the location very often. So

an improper location of plant may lead to waste of all the investments made in building

and machinery, equipment.

Before a location for a plant is selected, long range forecasts should be made

anticipating future needs of the company. The plant location should be based on the

company’s expansion plan and policy, diversification plan for the products, changing

market conditions, the changing sources of raw materials and many other factors that

influence the choice of the location decision. The purpose of the location study is to

find an optimum location one that will result in the greatest advantage to the

organization.

NEED FOR SELECTING A SUITABLE LOCATION

The need for selecting a suitable location arises because of three situations.

1. When starting a new organization location choice for the 1st time.

2. In case of existing organization.

3. In case of Global Location.


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I. In Case of Location Choice for the First Time or New

Organisations Cost economies are always important while selecting a location for the first time, but

should keep in mind the cost of long-term business organisational objectives. The

following are the factors to be considered while selecting the location for the new

organisations:

1. Identification of region: The organisational objectives along with the various long-term

Considerations about marketing, technology, internal organisational strengths and

weaknesses, region specific resources and business environment, legal-governmental

environment, social environment and geographical environment suggest a suitable

region for locating the operations facility.

2. Choice of a site within a region: Once the suitable region is identified, the next step is choosing the best site from an

available set. Choice of a site is less dependent on the organisation’s long-term strategies.

Evaluation of alternative sites for their tangible and intangible costs will resolve facilities-

location problem.

The problem of location of a site within the region can be approached with the

following cost-oriented non-interactive model, i.e., dimensional analysis.

3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and

Selection of a site is easy. The location with the least cost is selected. In most of the

cases

Intangible costs which are expressed in relative terms than in absolute terms.

Their relative merits and demerits of sites can also be compared easily. Since both

tangible and intangible costs need to be considered for a selection of a site, dimensional

analysis is used.

II. In Case of Location Choice for Existing Organisation

In this case a manufacturing plant has to fit into a multi-plant operations strategy. That

is, additional plant location in the same premesis and elsewere under following

circumstances:

1. Plant manufacturing distinct products.

2. Manufacturing plant supplying to specific market area.

3. Plant divided on the basis of the process or stages in manufacturing.


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4. Plants emphasizing flexibility.

The different operations strategies under the above circumstances could be:

1. Plants manufacturing distinct products:

Each plant services the entire market area for the organization. This strategy is

necessary where the needs of technological and resource inputs are specialized

or distinctively different for the different product-lines.

For example, a high quality precision product-line should not be located along

with other product-line requiring little emphasis on precision. It may not be

proper to have too many contradictions such as sophisticated and old equipment,

highly skilled and semi-skilled personnel, delicate processes and those that could

permit rough handlings, all under one roof and one set of managers. Such a

setting leads to much confusion regarding the required emphasis and the

management policies.

Product specialization may be necessary in a highly competitive market. It may be

necessary to exploit the special resources of a particular geographical area. The

more decentralized these pairs are in terms of the management and in terms of

their physical location, the better would be the planning and control and the

utilization of the resources.

2. Manufacturing plants supplying to a specific market area:

Here, each plant manufactures almost all of the company’s products. This type of

strategy is useful where market proximity consideration dominates the resources

and technology considerations. This strategy requires great deal of coordination

from the corporate office. An extreme example of this strategy is that of soft

drinks bottling plants.

3. Plants divided on the basis of the process or stages in manufacturing:

production process or stage of manufacturing may require distinctively different

equipment capabilities, labor skills, technologies, and managerial policies and

emphasis. Since the products of one plant feed into the other plant, this strategy

requires much centralized coordination of the manufacturing activities from the

corporate office that are expected to understand the various technological aspects

of all the plants.

4. Plants emphasizing flexibility: This requires much coordination between plants

to meet the changing needs and at the same time ensure efficient use of the


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facilities and resources. Frequent changes in the

long-term strategy in order to improve be

efficiently temporarily, are not healthy for the organization.

III. In Case of Global Location

Because of globalisation, multinational corporations are setting up their

organizations in India and Indian companies are extending their operations in

other countries. In case of global locations there is scope for virtual proximity and

virtual factory.

VIRTUAL PROXIMITY

With the advance in telecommunications technology, a firm can be in virtual

proximity to its customers. For a software services firm much of its logistics is

through the information communication pathway. Many firms use the

communications highway for conducting a large portion of their business

transactions. Logistics is certainly an important factor in deciding on a location

whether in the home country or

abroad. Markets have to be

reached. Customers have to be

contacted. Hence, a market

presence in the country of the

customers is quite necessary.

VIRTUAL FACTORY

Many firms based in USA and UK

in the service sector and in the

manufacturing sector often out sources part of their business processes to foreign

locations such as India. Thus, instead of one’s own operations, a firm could use

its business associates’ operations facilities. The Indian BPO firm is a foreign-

based company’s ‘virtual service factory’. So a location could be one’s own or one

’s business associates. The location decision need not always necessarily pertain to

own operations.


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REASONS FOR A GLOBAL/FOREIGN LOCATION

A. Tangible Reasons

The trangible reasons for setting up an operations

facility abroad could be as follows:

Reaching the customer:

One obvious reason for locating a facility abroad is that of capturing a share of the

market expanding worldwide. The phenomenal growth of the GDP of India is a

big reason for the multinationals to have their operations facilities in our country.

An important reason is that of providing service to the customer promptly and

economically which is logistics-dependent. Therefore, cost and case of logistics is

a reason for setting up manufacturing facilities abroad. By logistics set of activities

closes the gap between production of goods/services and reaching of these

intended goods/services to the customer to his satisfaction. Reaching the

customer is thus the main objective. The tangible and intangible gains and costs

depend upon the company defining for itself as to what that ‘reaching’ means.

The tangible costs could be the logistics related costs; the intangible costs may be

the risk of operating is a foreign country. The tangible gains are the immediate

gains; the intangible gains are an outcome of what the company defines the

concepts of reaching and customer for itself. The other tangible reasons could be

as follows:

i. The host country may offer substantial tax advantages compared to the

home country.

ii. The costs of manufacturing and running operations may be substantially

less in that foreign country. This may be due to lower labour costs, lower

raw material cost, better availability of the inputs like materials, energy,

water, ores, metals, key personnel etc.

iii. The company may overcome the tariff barriers by setting up a

manufacturing plant in a foreign country rather than exporting the items to

that country.


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B. Intangible Reasons

The intangible reasons for considering setting up an operations facility abroad could be

as follows:

1.Customer-related Reasons

(a) With an operations facility in the foreign country, the firm’s customers may

feel secure that the firm is more accessible. Accessibility is an important

‘service quality’ determinant.

(b) The firm may be able to give a personal tough.

(c) The firm may interact more intimately with its customers and may thus

understand their requirements better.

(d) It may also discover other potential customers in the foreign location.

2. Organisational Learning-related Reasons

(a) The firm can learn advanced technology. For example, it is possible that

cutting-edge technologies can be learn by having operations in an technologically

more advanced country. The firm can learn from advanced research

laboratories/universities in that country. Such learning may help the entire

product-line of the company.

(b) The firm can learn from its customers abroad. A physical location there may

be essential towards this goal.

(c) It can also learn from its competitors operating in that country. For this

reason, it may have to be physically present where the action is.

(d) The firm may also learn from its suppliers abroad. If the firm has a

manufacturing plant there, it will have intensive interaction with the suppliers in

that country from whom there may be much to learn in terms of modern and

appropriate technology, modern management methods, and new trends in

business worldwide.


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3.Other Strategic Reasons

(a) The firm by being physically present in the host country may gain some ‘local

boy’ kind of psychological advantage. The firm is no more a ‘foreign’ company

just sending its products across international borders. This may help the firm in

lobbying with the government of that country and with the business associations in

that country.

(b) The firm may avoid ‘political risk’ by having operations in multiple countries.

(c) By being in the foreign country, the firm can build alternative sources of

supply. The firm could, thus, reduce its supply risks.

General Locational Factors

Following are the general factors required for location of plant in case of all types

of organisations.

CONTROLLABLE FACTORS

1. Proximity to markets

2. Supply of materials

3. Transportation facilities

4. Infrastructure availability

5. Labour and wages

FACTORS FOR GOOD LAYOUT

The layout is governed by many factors. The best layout is one, which optimize

all the factors. These factors

are grouped under eight categories. They are:

(i)Material Factors

Product Design

Product Variety

Quantity Produced

Necessary Operations of producers

Sequence of Production


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(ii)Men Factor

The number of Direct Workers

Supervision and Service help required

Manpower utilization

Safety of employees

(iii)Machinery Factor

Process of Production

Equipment used for production

Tools and their utilization

(iv)Movement Factor

Inter and Intra Department Transport

Material Handling at various operations

Storage and Inspection

Material Handling Equipments

(v)Waiting Factors

Permanent and Temporary Storage

Delay and their location.

(vi)Service Factors

Related to employee facilities such as, parking lot, lockers, toilets, waiting

rooms.

Related to material in terms of quality, production control, scheduled,

Dispatching, Waste control.

Related to machinery such as Maintenance

1. (vii)Building Factors

Interior and Exterior of the buildings

Utility Distribution and Equipments

(viii)Change Factor

Versality

Flexibility

Expansion


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Types of Plant Layout

Layouts can be classified into a lot of categories , I will write about the main five

categories as the following :

1. Product or Line Layout

2. Process or Functional Layout.

3. Fixed Position Layout.

4. Combination type of Layout.

5. Group layout

1. Product or Line Layout:

If all the processing equipment and machines are arranged according to the sequence of

operations of the product, the layout is called product type of layout. In this type of

layout, only one product of one type of products is produced in an operating area. This

product must be standardized and produced in large quantities in order to justify the

product layout.

The raw material is supplied at one end of the line and goes from one operation to the

next quite rapidly with a minimum work in process, storage and material handling. Fig.

8.3 shows product layout for two types of products A and B.

Advantages offered by Product Layout:

(i) Lowers total material handling cost.

(ii) There is less work in processes.

(iii) Better utilization of men and machines,

(iv) Less floor area is occupied by material in transit and for temporary storages.

(v) Greater simplicity of production control.

(vi) Total production time is also minimized.

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Limitations of Product Layout:

(i) No flexibility which is generally required is obtained

in this layout.

(ii) The manufacturing cost increases with a fall in volume of production.

(iii) If one or two lines are running light, there is a considerable machine idleness.

(iv) A single machine break down may shut down the whole production line.

(v) Specialized and strict supervision is essential.

2. Process or Functional Layout:

The process layout is particularly useful where low volume of production is needed. If

the products are not standardized, the process layout is more low desirable, because it

has creator process flexibility than other. In this type of layout, the machines and not

arranged according to the sequence of operations but are arranged according to the

nature or type of the operations. This layout is commonly suitable for non repetitive

jobs.

Same type of operation facilities are grouped together such as lathes will be placed at

one place, all the drill machines are at another place and so on. See Fig. 8.4 for process

layout. Therefore, the process carried out in that area is according to the machine

available in that area.

Advantages of Process Layout:

(i) There will be less duplication of machines. Thus, total investment in equipment

purchase will be reduced.

(ii) It offers better and more efficient supervision through specialization at various levels.

(iii) There is a greater flexibility in equipment and man power thus load distribution is

easily controlled.

(iv) Better utilization of equipment available is possible.

(v) Break down of equipment can be easily handled by transferring work to another

machine/work station.

(vi) There will be better control of complicated or precision processes, especially where

much inspection is required.

Limitations of Process Layout:

(i) There are long material flow lines and hence the expensive handling is required.

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(ii) Total production cycle time is more owing to long

distances and waiting at various points.

(iii) Since more work is in queue and waiting for further

operation hence bottle necks occur.

(iv) Generally, more floor area is required.

(v) Since work does not flow through definite lines, counting and scheduling is more

tedious.

(vi) Specialization creates monotony and there will be difficult for the laid workers to

find job in other industries.

3. Fixed Position Layout:

This type of layout is the least important for today’s manufacturing industries. In this

type of layout the major component remain in a fixed location, other materials, parts,

tools, machinery, man power and other supporting equipment’s are brought to this

location.

The major component or body of the product remain in a fixed position because it is

too heavy or too big and as such it is economical and convenient to bring the necessary

tools and equipment’s to work place along with the man power. This type of layout is

used in the manufacture of boilers, hydraulic and steam turbines and ships etc.

Advantages Offered by Fixed Position Layout:

(i) Material movement is reduced

(ii) Capital investment is minimized.

(iii) The task is usually done by gang of operators, hence continuity of operations is

ensured

(iv) Production centers are independent of each other. Hence, effective planning and

loading can be made. Thus total production cost will be reduced.

(v) It offers greater flexibility and allows change in product design, product mix and

production volume.

Limitations of Fixed Position Layout:

(i) Highly skilled man power is required.

(ii) Movement of machines equipment’s to production centre may be time consuming.

(iii) Complicated fixtures may be required for positioning of jobs and tools. This may

increase the cost of production.

4. Combination Type of Layout:

Now a days in pure state any one form of layouts discussed above is rarely found.

Therefore, generally the layouts used in industries are the compromise of the above

mentioned layouts. Every layout has got certain advantages and limitations. Therefore,

industries would to like use any type of layout as such.

Flexibility is a very important factory, so layout should be such which can be molded

according to the requirements of industry, without much investment. If the good


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features of all types of layouts are connected, a

compromise solution can be obtained which will be

more economical and flexible.

Plant location and layout

Engineering